Churn Rate

What is 'Churn Rate'

The churn rate, also known as the rate of attrition, is the percentage of subscribers to a service who discontinue their subscriptions to that service within a given time period. For a company to expand its clientele, its growth rate, as measured by the number of new customers, must exceed its churn rate. The rate is generally expressed as a percentage.

BREAKING DOWN 'Churn Rate'

Churn rate is an important consideration in the telephone and cell phone services industry. In many geographical areas, several companies are competing for customers, making it easy for people to transfer from one provider to another. If one out of every 20 subscribers to a high-speed internet connection discontinued his service within a year, the annual churn rate for that internet provider would be 5%.

To be counted as part of the churn rate, the customer does not necessarily have to move his service to a different provider; he just has to terminate his relationship with the current provider. This measurement is most valuable in subscriber-based businesses in which subscription fees make up the bulk of the company’s revenue.

Churn and Growth Rates

A company can compare its churn and growth rates to determine if there was overall growth or loss. While the churn rate tracks lost customers, the growth rate tracks new customers who begin purchasing from the organization. If the growth rate is higher than the churn rate, the company has experienced growth. When the churn rate is higher than the growth rate, the company has experienced a loss in its customer base.

Churn Rates in the Telecommunications Industry

One industry in which churn rates are particularly useful is the telecommunications industry. This includes cable or satellite television providers, internet providers and telephone service providers, both landline and wireless. As most customers have multiple options from which to choose within a geographic area, the churn rate helps a company determine how it is measuring up to its relevant competitors.

Churn Rate and Employee Retention

Employee turnover within a business can also be measured in a churn rate, as it provides a method for analyzing the company's hiring and retention patterns. This can be especially helpful if overall employee longevity within a company is low. When statistics are examined on a department by department basis, it can highlight which particular departments are experiencing more frequent turnover within the company, or at a higher rate than the business average.